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Acorn International Reports First Quarter 2010 Financial Results

SHANGHAI, May 21 /CHICAGOPRESSRELEASE.COM/ — Acorn International, Inc.
(NYSE: ATV) (“Acorn” or the “Company”), a leading integrated
multi-platform marketing company in China engaged in developing, promoting and
selling consumer products and services, today announced its unaudited
financial results for the quarter ended March 31, 2010.

    (Logo: http://www.newscom.com/cgi-bin/prnh/20090811/CNTU028LOGO )

    Summary Results for the First Quarter 2010:
    -- Net revenues were $70.3 million, a decrease of 19.2% compared to $87.0
       million in the first quarter of 2009.
    -- Gross profit was $30.9 million, a decrease of 27.2% compared to $42.5
       million in the first quarter of 2009.
    -- Gross margin was 44.0%, compared to 48.8% in the same period of 2009.
    -- Operating loss was $0.5 million, compared to an operating income of
       $8.1 million in the first quarter of 2009.
    -- Other income was $1.8 million, compared to $1.0 million in the first
       quarter of 2009.
    -- Income from continuing operations was $0.8 million compared to $7.8
       million for the first quarter of 2009.
    -- Net income from continuing operations attributable to Acorn was $0.9
       million compared to $8.0 million in the first quarter of 2009.
    -- Share-based compensation expenses were $0.1 million for the first
       quarter of 2010, compared to $0.8 million for the same period last year.
    -- Diluted income per ordinary share and per American Depositary Shares
       ("ADS") from continuing operations were $0.01 and $0.03, respectively.

“First quarter 2010 results reflect continued weakness in sales of mobile
phones through our distribution channel and unexpected weaker sales for our
Ozing electronic learning products. Our mobile phones business underperformed
in the first quarter 2010 compared to the same period last year as a result of
our efforts to reduce old inventories of Uking branded mobile handsets through
significant price discounts. In addition, Ozing sales declined by $9.8 million
or 29.6% on a year on year comparison due to increasing industry competition
and poor media return for our Ozing electronic learning products,” said Mr.
James Hu, Chairman and CEO of Acorn. “While our overall sales and profit
lagged from the same period last year, we remain optimistic about our business
prospects. First, non-TV direct sales, represented by third party bank channel
sales, outbound calls, catalog and e-commerce sales, continued their healthy
growth momentum in the first quarter 2010. Second, we significantly reduced
our SG&A expenses from the same period one year ago. Finally, mobile phone
direct sales, led by our sale of Gionee’s A320 model, grew 62.4% from $6.0
million in the first quarter 2009 to $9.7 million in the first quarter 2010.
We also expect mobile handset distribution sales to begin to show recovery in
the second quarter of 2010 as we diversify our mobile handset product offering
to include more handset models in 2010. Furthermore, we have refined our Ozing
product marketing strategy for the rest of 2010 to focus on growing our
English learning products instead of touch readers targeted at younger aged
children. We believe our modified strategies for marketing and selling mobile
phones and Ozing products, coupled with an ongoing expansion of our non-TV
direct sales, position us to grow our business during the remaining periods of
the year.”

Business Results for the First Quarter of 2010:

— Non-TV direct sales grew from 27.8% to 53.5% of total direct sales in
the first quarter of 2009 and the first quarter of 2010, respectively. Non-TV
direct sales are classified by sales from the Company’s third party bank
channel sales, outbound calls, catalog and e-commerce sales. Growth in non-TV
direct sales significantly helps reducing Company’s revenue volatility and the
Company’s reliance on TV advertising expenditures. Revenues from third party
bank channel sales, the largest contributor to the growth of the Company’s
non-TV direct sales, was approximately $11.6 million in the first quarter of
2010, representing an increase of 172.1% from approximately $4.3 million in
the same period last year.

— Direct sales of mobile handsets led by Gionee’s A320 model grew 62.4%
to $9.7 million in first quarter of 2010 from $6.0 million for the same period
one year ago. The Company expects to expand its marketing of third party
brands, such as the Gionee’s A320 model, to drive sales growth in direct sales
of mobile handsets. Strong direct sales of mobile handsets in the first
quarter of 2010 suggest a possible business recovery for the Company’s overall
mobile handset business.

— Other selling and marketing expenses decreased 16.3% to $10.2 million
from $12.1 million for the first quarter of 2009. General and administrative
expenses decreased by 24.2% to $6.4 million for the first quarter of 2010 from
$8.4 million for the same period last year. The decline in both expense
categories largely reflects the Company’s successful cost control initiatives,
reduced share-based compensation expenses, and the reduction in amortization
expense in relation to Yiyang Yukang related intangible assets in the first
quarter 2010.

— Financial Results for the First Quarter of 2010:

Direct sales contributed 52.0% to total net revenues, or $36.5 million,
for the first quarter 2010, and decreased 7.0% from $39.3 million for the
first quarter last year, mainly due to the significant decrease in the sales
volume of Ozing products from increasing industry competition and poor media
return for Ozing products. The decrease in direct sales revenues was partially
offset by the increase in mobile handset revenues led by the Gionee’s A320
model.

Distribution sales net revenues decreased 29.3% year-over-year to $33.8
million from $47.8 million in the first quarter 2009, primarily due to the
Company’s effort to reduce inventory of Uking branded mobile phones by
significantly lowering their average selling prices in the first quarter of
2010.

The table below summarizes the gross revenues from the three best selling
product categories for the direct sales platform, distribution network and
total direct and distribution sales, respectively:



                                        Three Months Ended March 31, 2010
                                                 (in US dollars)
    Direct sales
    Mobile handsets                                                9,697,129
    Cosmetics                                                      9,671,667
    Autocare products (Energy)                                     4,008,799

    Distribution sales
    Electronic learning product (Ozing)                           21,559,138
    Electronic dictionary (Meijin)                                 5,156,873
    Mobile handsets (Yiyang Yukang)                                2,682,803

    Total direct and distribution sales
    Electronic learning product (Ozing)                           23,285,876
    Mobile handsets                                               12,379,932
    Cosmetics                                                      9,717,232

Cost of sales for the first quarter of 2010 was $39.4 million, an 11.5%
decrease from $44.5 million for the first quarter of 2009, primarily due to
decreased costs for distribution sales from reduction of volume in mobile
handset sales.

Gross profit for the first quarter of 2010 was $30.9 million, a decrease
of 27.2% compared to $42.5 million for the first quarter of 2009. Gross margin
was 44.0% in the first quarter of 2010, compared to 48.8% in the same period
in 2009.

Gross profit from direct sales for the first quarter of 2010 decreased
18.7% to $18.7 million from $23.1 million for the first quarter of 2009. Gross
margin for direct sales for the first quarter of 2010 was 51.3%, compared to
58.7% in the same period last year. The decrease in gross margin was largely
due to an increased proportion of the non-TV direct sales, which have lower
margins compared to TV direct sales, lower gross margin of Ozing products from
the introduction of the lower margin K2 product line and a greater
contribution from sales of mobile handsets.

Gross profit from distribution sales for the first quarter of 2010 was
$12.2 million, a decrease of 37.4% from $19.4 million for the first quarter of
2009. Gross margin for distribution sales for the first quarter of 2010 was
36.0%, down from 40.7% for the same period last year. The decrease in gross
margin was mainly due to the Company’s efforts to reduce inventory of Uking
branded mobile handsets by lowering average sales prices.

Advertising expenses were $15.3 million for the first quarter of 2010,
compared to $15.9 million for the first quarter of 2009. Gross profit over
advertising expenses, a benchmark Acorn uses to measure return on multiple
sales platforms, was 2.02 in the first quarter of 2010, down from 2.67 in the
first quarter of 2009.

Other selling and marketing expenses decreased 16.3% to $10.2 million from
$12.1 million for the first quarter of 2009, mainly due to the decreased call
center expenses, lower packaging and delivery costs as a result of decreased
sales revenues and the decreased amortization expenses of Yiyang Yukang
related intangible assets.

General and administrative expenses were $6.4 million for the first
quarter of 2010, a 24.2% decrease from $8.4 million in the first quarter of
2009. The decrease was largely due to the Company’s effective cost control
efforts and a decrease in share-based compensation expenses.

Other operating income, net, was $0.4 million for the first quarter of
2010, down from $2.1 million in the first quarter of 2009. The decline was due
to the decrease in subsidy income.

As a result, operating loss for the first quarter of 2010 was $0.5 million,
compared to an operating income of $8.1 million for the same period last year.

Other income was $1.8 million, compared to $1.0 million in the first
quarter of 2009. The increase was due to a gain from the deconsolidation of
one of Acorn’s subsidiaries.

Share-based compensation expenses for the first quarter of 2010 were $0.1
million, compared to $0.8 million for the first quarter of 2009.

Income from continuing operations was $0.8 million compared to $7.8
million for the first quarter of 2009.

Net income from continuing operations attributable to Acorn was $0.9
million for the first quarter 2010 compared to $8.0 million for the first
quarter last year.

Diluted income per ordinary share and per ADS from continuing operations
were $0.01 and $0.03, compared to diluted income per ordinary share and per
ADS from continuing operations of $0.09 and $0.26 in the same period last year.

As of March 31, 2010, Acorn’s cash and cash equivalents totaled $104.3
million, a decrease of $38.7 million from December 31, 2009. The decrease in
cash and cash equivalents balance was largely due to the $29.3 million special
cash dividend distributed in the first quarter 2010.

Full Year 2010 Business Outlook:

“While the second quarter is traditionally a slow season for our
distribution business, we expect year over year improvement in our direct
sales in the second quarter of 2010 from continued growth in our non-TV direct
sales business and improved mobile handset sales led by the diversification of
handset models,” said Mr. James Hu, Chairman and CEO of Acorn. “We understand
the challenges ahead and will focus our efforts on improving the sales of our
Ozing electronic learning products and mobile handsets while continuing to
expand our non-TV direct sales and identify new products to be marketed on our
platform. With the current business outlook, we will maintain our guidance
previously set forth and will strive to achieve the financial target of
revenue between $290 million to $310 million and income from continuing
operations of $12 million and $14 million for fiscal year 2010.”

These estimates are subject to change. Also, Acorn reminds investors that
its operating results in each period are impacted significantly by the mix of
products and services sold in the period and the platforms through which they
are sold. Consequently, in evaluating the overall performance of Acorn’s
multiple sales platforms in any period, management also considers metrics such
as operating margin and gross profit return on advertising expenses.

Conference Call Information

The Company will host a conference call at 8:00 a.m. ET on Friday, May 21,
2010 (8:00 p.m. Beijing Time) to review the Company’s financial results and
answer questions. You may access the live interactive call via:

     -- +1 888 226 7625 (U.S. Toll Free)
     -- +1 706 634 6316 (International)
     -- Passcode: 749 143 85

Please dial-in approximately 10 minutes in advance to facilitate a timely
start.

A replay will be available for 14 days after the call starting from 10:00
a.m. ET on Friday, May 21, 2010 and may be accessed via:

     -- +1 800 642 1687 (U.S. Toll Free)
     -- +1 706 645 9291 (International)
     -- Passcode: 749 143 85

A live and archived webcast of the call will be available on the Company’s
website at http://www.ir-site.com/acorn/index.asp . To listen to the live
webcast, please go to the Company’s website at least fifteen minutes prior to
the start of the call to register, download and install any necessary audio
software.

About Acorn International, Inc.

Acorn is a leading integrated multi-platform marketing company in China,
operating one of China’s largest TV direct sales businesses in terms of
revenues and TV air time and a nationwide off-TV distribution network. Acorn’s
TV direct sales platform consists of airtime purchased from both national and
local channels. In addition to marketing and selling through its TV direct
sales programs and its off-TV nationwide distribution network, Acorn also
offers consumer products and services through catalogs, third party bank
channels, outbound telemarketing center and an e-commerce website. Leveraging
its integrated multiple sales and marketing platforms, Acorn has built a
proven track record of developing and selling proprietary-branded consumer
products, as well as products and services from established third parties.
For more information, please visit http://www.chinadrtv.com .

Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995

This press release contains “forward-looking statements,” including, among
other things, Acorn’s anticipated operating results for 2010; expected
improvements in Acorn’s business and operating results following its changed
marketing strategy for mobile handsets and Ozing products; an expected
improvement in Acorn’s overall mobile handset business; and an expected
increase in non-TV direct sales revenues. These forward-looking statements are
not historical facts but instead represent only our belief regarding future
events, many of which, by their nature, are inherently uncertain and outside
of our control. Our actual results and financial condition and other
circumstances may differ, possibly materially, from the anticipated results
and financial condition indicated in these forward-looking statements. Our
business may not improve in the remainder of 2010, our strategies to improve
Ozing products and mobile handsets sales may not succeed and we may fail to
meet our operating results expectations. In particular, our operating results
for any period are impacted significantly by the mix of products and services
sold by us in the period and the platforms through which they are sold,
causing our operating results to fluctuate and making them difficult to
predict.

Other factors that could cause forward-looking statements to differ
materially from actual future events or results include risks and
uncertainties related to: our ability to effectively consolidate our
distribution channels, our ability to successfully introduce new products and
services, including to offset declines in sales of existing products and
services; our ability to stay abreast of consumer market trends and maintain
our reputation and consumer confidence; continued access to and effective
usage of TV advertising time and pricing related risks; relevant government
policies and regulations relating to TV media time and TV direct sales
programs, including the new SARFT regulations and actions that may make TV
media time unavailable to us or require we suspend or terminate a particular
TV direct sales program; rising costs in key components of our products, such
as flash memory, potential unauthorized use of our intellectual property;
potential disruption of our manufacturing process; increasing competition in
China’s consumer market; our U.S. tax status as a passive foreign investment
company; and general economic and business conditions in China. The financial
information contained in this release should be read in conjunction with the
consolidated financial statements and notes thereto included in our 2009
annual report on Form 20-F filed with Securities and Exchange Commission on
May 6, 2010. For a discussion of other important factors that could adversely
affect our business, financial condition, results of operations and prospects,
see “Risk Factors” beginning on page 6 of our Form 20-F for the fiscal year
ended December 31, 2009. Our actual results of operations for the first
quarter 2010 are not necessarily indicative of our operating results for any
future periods. Any projections in this release are based on limited
information currently available to us, which is subject to change. Although
such projections and the factors influencing them will likely change, we will
not necessarily update the information. Such information speaks only as of the
date of this release.



                            ACORN INTERNATIONAL, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In US dollars, except share data)

                                                Three Months Ended March 31,
                                                  2009               2010
     Revenues:
      Direct sales, net                        39,280,081         36,546,140
      Distribution sales, net                  47,768,308         33,791,112
     Total revenues, net                       87,048,389         70,337,252
     Cost of revenues:
      Direct sales                             16,226,502         17,803,197
      Distribution sales                       28,320,163         21,609,455
     Total cost of revenues                    44,546,665         39,412,652
     Gross profit                              42,501,724         30,924,600
     Operating (expenses) income:
      Advertising expenses                    (15,933,478)       (15,292,029)
      Other selling and marketing
       expenses                               (12,129,947)       (10,158,127)
      General and administrative expenses      (8,404,269)        (6,368,043)
      Other operating income, net               2,109,895            369,000
     Total operating (expenses) income        (34,357,799)       (31,449,199)
     Income (Loss) from operations              8,143,925           (524,599)
     Other income (expenses)                      968,340          1,750,335
     Income before income taxes and
      discontinued operations                   9,112,265          1,225,736
     Income tax expenses                       (1,298,989)          (402,999)
     Income from continuing operations          7,813,276            822,737
     Income from discontinued operations          978,737                 --
     Net income                                 8,792,013            822,737
     Net income attributable to
      non-controlling interests                  (339,929)            46,113
     Net income attributable to Acorn
      International, Inc.                       8,452,084            868,850
     Income per ADS
      - Continuing operations                        0.27               0.03
      - Discontinued operations                      0.02                 --
      Basic                                          0.29               0.03
      - Continuing operations                        0.26               0.03
      - Discontinued operations                      0.02                 --
      Diluted                                        0.28               0.03
     Weighted average number of shares
      used in calculating income per ADS
      - Basic                                  87,536,189         88,856,915
      - Diluted                                90,100,292         90,106,131



                            ACORN INTERNATIONAL, INC.
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In US dollars)

                                            December 31,           March 31,
                                                2009                 2010
    Assets
    Current assets:
     Cash and cash equivalents              142,952,944          104,292,289
     Restricted cash                          2,394,213              884,497
     Short-term investments                  18,572,790           15,058,393
     Accounts receivable, net                17,030,857           20,472,403
     Notes receivable                         2,242,641            2,414,962
     Inventory                               26,180,629           27,730,004
     Prepaid advertising expenses             9,968,493           10,866,264
     Other prepaid expenses and
      current assets, net                     7,794,537           10,231,743
     Deferred tax assets, net                 2,320,535            2,378,511
     Total current assets                   229,457,639          194,329,066
    Prepaid land use rights                   7,349,957            7,314,490
    Property and equipment, net              14,818,404           15,629,895
    Acquired intangible assets, net           3,181,596            3,062,733
    Long-term investments                     8,020,069            7,721,180
    Investment in affiliates                  8,881,830            9,849,814
    Other long-term assets                    1,673,755            2,148,355
    Total assets                            273,383,250          240,055,533

    Liabilities and equity
    Current liabilities:
     Accounts payable                        15,528,580           18,181,868
     Accrued expenses and other
      current liabilities                    14,838,142           10,369,470
     Notes payable                            3,253,005              592,978
     Income taxes payable                     3,422,261            3,342,887
     Dividend payable                        29,322,782                8,191
     Total current liabilities               66,364,770           32,495,394
    Deferred tax liabilities                    889,625              888,923
    Business combination liability            1,103,015            1,103,015
    Total liabilities                        68,357,410           34,487,332

    Equity
    Acorn International Inc.
     shareholders' equity:
     Ordinary shares                            935,447              935,447
     Additional paid-in capital             178,176,225          178,278,084
     Retained earnings                       18,573,296           19,442,146
     Accumulated other comprehensive
      income                                 17,562,561           17,521,554
     Treasury stock, at cost                (11,612,546)         (11,612,546)
     Total Acorn International Inc.
      shareholders' equity                  203,634,983          204,564,685
    Non-controlling interests                 1,390,857            1,003,516
    Total equity                            205,025,840          205,568,201
    Total liabilities and equity            273,383,250          240,055,533


    For more information, please contact:

    Acorn International, Inc.
     Ms. Chen Fu, IR Director
     Phone: +86-21-5151-8888 x2228
     Email: fuchen@chinadrtv.com
     Web:   http://www.chinadrtv.com

    CCG Investor Relations
     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915 (New York)
     Email: crocker.coulson@ccgir.com
     Web:   http://www.ccgirasia.com

SOURCE Acorn International, Inc.

http://www.chinadrtv.comhttp://www.ir-site.com/acorn/index.asp

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